How to get an Education Loan? 

                

How to get an Education loan 

  Image courtesy: Sparsh Sharma, AMU                            

Background 

Education Loan Scheme is in vogue in our country for nearly two decades now. It does not mean that banks were not financing education earlier, but in 2001, a structured scheme was prepared by the Indian Banks Association (IBA) and approved by the Government of India for implementation through commercial banks. In this post, we are going to discuss at length How to get an Education Loan.

Reserve Bank Of India (RBI) also classified Education Loans currently, up to Rs. 20 lakh into priority sector advances to encourage banks to finance under the scheme. According to a report published in Business-Standard in January 2020, the education loan portfolio of Indian commercial banks is nearly Rs.65,000 crore about 0.3% of our Gross Domestic Product (GDP), and 95% of loans are given by public sector banks (PSBs).

On the other hand, NPAs (Non-Performing Assets) in education loans are near to 9% according to a report published in the Hindu in January 2019. The highest 21.28% of NPAs are attributed to Nursing courses. The next high NPA category (9.76%) is from finance extended to Engineering courses. Unemployment may be one of the major reasons for this situation, but highly surprising is that 6.06% of NPAs are from advances given to Medical Education.

Why Education Loans are declining?

The above data revealed the reason why total disbursement in Education Loans are declining since 2016. I could also see the anguish expressed by students and their families in social media alleging that banks were reluctant in granting education loans.

In addition to PSBs, about 5-10% market is captured by private sector banks and NBFCs, but their reach is limited and common people are not so comfortable in view of charges and rates of interest. The majority of advances are under partnership arrangements with educational institutions. 

Ultimately, the responsibility of serving the masses comes to PSBs. The idea of presenting this piece of writing is to make prospective students/ borrowers aware of the scheme and take its benefit.

Education is the passport to the future, for tomorrow belongs to those who prepare for it today. – Malcolm X

इस लेख को आप  हिन्दी में भी पढ़ सकते हैं ।

Now we will discuss How to get an Education Loan, in detail:

What are Eligibility Criteria?

Student's Eligibility:

 

• Should be an Indian National between 16 and 35 years of age

• The student should have secured admission to a higher education course in recognized institutions in India or Abroad through an Entrance Test/Merit based selection process after completion of HSC (10 + 2 or equivalent).

• Good academic career.

• The student should not have an outstanding Education Loan from any other Institution.

• Father/Mother should be co-borrower.

• The branch nearest to the permanent residence of the Students will consider the loan.

Eligibility of Courses:

• Approved Courses leading to graduate /post-graduate degrees and P.G. diplomas conducted by        recognized colleges/ universities by UGC/Government/AICTE/AIBMS/ICMR

• Courses like ICWA, CA, CFA, etc.

• Courses conducted by IIM, IIT, IISc, XLRI, NIFT, NID &  other Institutes set up by Central/State Govt.

• Regular Degree /Diploma courses like Aeronautical, Pilot Training Shipping, degree/diploma in nursing, or any other discipline approved by the Director General of Civil Aviation/Shipping/Indian Nursing Council

• Graduation: For job-oriented professional/technical courses offered by reputed universities.

• Post-Graduation: MCA, MBA, MS, etc.

• Courses conducted by CIMA - London, CPA in the USA, etc.

Please remember that Professional courses not approved by AICTE and conducted by Institutes not recognized by the State Universities are outside the purview of the eligibility under the scheme.

What Expenses are considered For a Loan?

• Fee payable to college/school/hostel ( As per brochure/ demand letter from the institution.)

• Examination/Library/Laboratory fee.

• Purchase of books/equipment/ instruments/uniforms.

• Caution deposit/building fund/refundable deposit supported by Institution bills/receipts.

• Travel expenses/passage money for studies abroad.

• Purchase of computers/Laptops - essential for completion of the course.

• Life Insurance Premium for life cover of student/co-borrower

• Any other expenses required to complete the course - like study tours, project work, thesis, etc.

 

Quantum of Finance?

 

• Need-based finance is subject to earning potential of the student upon completion of the course with and following ceilings

• Studies in India - Maximum Rs.10.00 lakh

• Studies abroad - Maximum Rs.20.00 lakh

 

How much Margin, do I have to bring in?

Up to Rs.4 lakh: Nil 

Above Rs.4 lakh - Studies in India: 5% Studies Abroad: 15%· 

The scholarship could be included in the margin and 

Margin to be brought in on year to year basis as and when disbursements are made.

 

Required any Security?

 

• Up to Rs. 7.5 Lacs: Only Parent/ Guardian as co-borrower. No Collateral Security or third-party guarantee

• Above Rs. 7.5 Lacs: Parent/ Guardian as co-borrower and tangible collateral security

Security can be in the form of land/buildings/ Govt. Securities/ Public Sector Bonds/ NSC/ KVP/ Life Insurance Policies/ Banks Term Deposit etc., in the name of Student/ Parent/ Guardian/Guarantor with a suitable margin.

Rate of Interest

Interest rates may slightly vary from bank to bank. For example,

In Bank Of India RBLR (currently 6.85%) plus 1.7% Total of 8.55% for loans up to 7.5 lakh.

For loans above Rs. 7.5 lacs RBLR plus 2.5% Total 2.5% Total 9.35%Up to Rs. 7.5 Lakhs

In SBI, the interest rate is linked to 3 years MCLR (currently 7.3%) plus 2% Total 9.3%.

Please remember that girl students are eligible for a concession of 0.5% in the applicable interest rate.

Insurance

Almost all banks own their insurance subsidiaries or have a tie-up with insurance companies. So, the student borrowers are offered specially designed OPTIONAL Term Insurance covers and the premium is included as a component for finance. This helps student borrowers and their parents to overcome financial burdens in case of any unfortunate incident at a future date.

Are there any Processing charges?

Processing charges also vary from bank to bank. For instance, 

In the Bank Of India (BOI),

·       No Processing charges – for study in India.

·       For studies abroad: Processing charges Rs.5,000/-.  (in BOI, the Processing charge excluding Service Tax is refunded once the actual loan is availed. 

In-State Bank Of India (SBI)

        Loans up to Rs. 20 lacs: NIL

        Loans above Rs. 20 lacs: Rs. 10,000 (plus taxes)

Any Other Expenses?

( On case to case basis, as applicable)

Portal Fee

In addition, student applicants may be required to pay fees/charges, if any, levied by third-party service providers who operate a common portal for lodging loan applications set up.

Stamp Duty / Mortgage Registration charges

In case any property is mortgaged, the borrower has to bear Stamp Duty as per the rate prevailing in the concerned State, Fee for Title Search report, and valuation charges. The borrower will also have to pay for the registration of an equitable mortgage with the Sub-Registrar wherever applicable.

Deviation charges

Sometimes, Bank agrees at the request of the student/ borrower for some deviation from the scheme norms including approval of courses outside the scheme. This deviation attracts Service Charges normally ranging from Rs.500/- to Rs. 3000/- per deviation based on the quantum of the loan.

How the loan is disbursed?

Several students have raised a query about how the loan amount is made available to them. After sanction of the loan and execution of loan documents/creation of charge on security (wherever applicable) loan amount is disbursed directly to the educational institution or vendor by way of a Demand Draft or RTGS/NEFT. It may happen in a few cases that the student has already paid to college or vendor the initial amount or semester fee, he /she may request the Bank to reimburse the amount. In such cases, the bank may consider reimbursing the amount to the credit to the student's bank account. 

 

When the loan is to be repaid?

• Repayment is to commence after one year from completion of the course or 6 months after getting a job, whichever is earlier

• Loan to be repaid in 15 years after the commencement of repayment. (Course period + 1 year + 15 years)

• In case the second loan is availed for higher studies later, to repay the combined loan amount in 15 years after completion of the second course

 

How EMI is calculated?

·         The accrued interest for the period of study and moratorium period is added to the principal and repayment is fixed in Equated Monthly Installments (EMI).

·  If full interest is serviced before the commencement of repayment; EMI is fixed based on the principal amount only.

 

Any Other Conditions?

·         Loan to be disbursed in stages as per requirement/demand, directly to the Institution/ Vendors of books/equipment/instruments to the extent possible

·         Student to produce a mark sheet of the previous term/semester before availing of the next disbursement

·         Student / Parent to provide the latest mailing address, in case of any change

·         Student /Parent to inform Branch immediately on change of course /completion of studies/termination of studies/ any refund of fees by college /institution /successful placement /obtention of job/change of job etc.

·         Students may also apply online on Vidya Lakshmi Portal developed by NSDL e-Governance Infrastructure Ltd.

Any Tax benefit?

The tax benefit is available on the interest paid on education loans under Section 80-E of the Income Tax Act 1961. There is no maximum limit on the deduction amount. The benefit of the deduction is available for a maximum of 8 years or till the interest is paid- whichever is earlier. It is applicable even when you have taken the education loan for your spouse, children, or for a student for whom you are a legal guardian.

How to apply?

Students seeking  Education Loans / Student Loans may approach the nearest bank- branch from their permanent residence. They can also apply online at vidyalakshmi portal at https://www.vidyalakshmi.co.in/

What Documents are needed?

•  Completed Application Form

•  Latest Photograph (Signed Across)

•   Academic Institute's Admission Letter with Fee break-up

•  SSC, HSC, Graduation Marksheets

•  KYC, Age Proof, Signature Proof, Identity Proof, Residence Proof

 Income Documents-*

 (for parents/ guardian/ guarantor)

Salaried- 

• Latest 2 Salary Slips carrying the date of joining details or  Form 16

•  Latest 6 Months Bank Statement of the Salary Account.

 Self Employed-

•   Last 2 Year ITR with Computation of Income

•   Last 2 Years Audited Balance Sheet

•   Last 6 Months' Bank Statement

•   Proof of Turnover (Latest Sales / GST Return)

 Self-Employed – Professional

•   Last 2 Year ITR with Computation of Income

•   Last 2 Years Audited Balance Sheet / Profit & Loss Account

•   Last 6 Months' Bank Statement

•  Proof of Professional Qualification

* This list of documents regarding income proof is only indicative and may differ from bank to bank.

A landmark verdict by Kerala High Court:

Recently Kerala High Court has given a landmark judgment. The hon'ble court has directed the bank to sanction Education Loan to the applicant. The applicant, an Ayurved medicine student was denied the loan on the basis of her poor family background. The Hon'ble High Court opined that the decision of the bank was against the spirit of the Education Loan Scheme framed by RBI. 

Summing up:

Hope students and their parents have a clear idea about How to get an Education Loan. The basic purpose of an Education Loan Scheme is that no deserving student should be deprived of getting the appropriate education for the paucity of funds. My advice to students and their parents would be to check their eligibility and also the course they want to pursue. In case of any doubt, they should approach the nearest bank branch for clarity.

And finally, a  request to my banker friends, education loans should not be treated just like any other finance, in fact, it is their contribution to nation-building as  Benjamin Franklin  once said, " An investment in knowledge pays the best interest."  

How you find this article, please give your feedback in Comment Box, appended below. You may also suggest topics, you would like me to write about. 

After the publication of this blog post first in October 2020, there were many queries on Education Loan from eager parents and their children, I have attempted to reply to some of them in another post on the same blog site. Interested readers may like to read the same.

Updated 18.07.2021

Contact: boirajeev@gmail.com